HARLEY-DAVIDSON INC.: DIVIDEND DISCOUNT VALUATION Case Study Analysis
Introduction
In July 2018, DWG- Dimensional Wealth Group (a long term investor in Harley Davidson), was considering upon the buy-side potential of the Harley Davidson stock. She needed to determine whether she should increase, decrease or keep the investment position same in the Harley Davison Company. Over the time DWG had remained bullish in terms of its position in the company’s stock i.e. the investment has been increasedby DWG over the time. However, DWG had to reconsider the bullish position in the company’s stock, as Harley Davidson started facing different challenges. The case revolves around suggesting an appropriate regarding the position in company’s stock.
Harley Davidson’s Business
Harley Davidson was incorporated in 1903. The headquarters of the company is located in Milwaukee, Wisconsin. The stock of the company trades on the New York Stock Exchange. Harley Davidson is basically a parent company, whereby it controlled the Harley Davidson Motor Company and the Financial Services. The company is basically engaged in production and sale of the cruise, tourist and custom motorcycle. The motorcycles and financial services are the two business segments owned by Harley Davidson.
Industry’s Growth Prospects
The growth prospects for the US motorcycle markets are moderate as the industry is expected to reach a $10.88 billion market by the end of the fiscal year 2025. It is expected that the increase in the sale of motorcycle will occur due to an increase in the surplus income. Over the period of 10 years from 1997-2006, the number of motorcycle registrations have increased in the United States from 3,826,373to 6,678,958(Research Markets, 2018). However, the case data shows that United States government has becoming a threat towards the market as the government has imposed 25% tariffs upon the imports of the inputs including steel and aluminum. In addition, the government had also pulled out from the Trans-Pacific Partnership, which could have enabled the tariffs on the US based motorcycles from 70% to 0%. Not only this, the number of motorcycle registrations have decreased in the United States. These all factors have urged the motorcycle companies to shift their production to abroad, such as: Europe, which is another growing market for the motorcycles.
Business Competitiveness
Harley Davidson used the product innovation and differentiation strategy in order to maintain its competitive advantage among different industry players. However, the sales of Harley Davidson has declined, even the sales show a negative growth during the previous years (See Exhibit 3). This might be a result of increased governmental pressure and tariffs, along with a credit crisis in the United States. These factors had affected all the motorcycle manufacturers. But the Harley Davidson hasmaintained its competitiveness due to its luxurious products, product innovation and differentiation strategy.
Harley Davidson’s Strategy
Harley Davison’s strategy is focused upon the differentiation strategy, whereby the company maintains its competitive advantage by selling unique, innovative and customized products in accordance with the preferences of the customers. From the case data it is analysed that the industry prospects are not much sound due to government tariffs impositions and credit crisis in the US’s economy. To improve itsbusiness position, Harley Davidson strategy is based upon the product development, whereby the company aims at developing new products for its existing markets. The new product development include the smaller engine motorcycles and the high impact Harley Davidson motorcycles. These strategic initiatives are expected to increase the company’s revenue from $1 billion to $1.5 billion and the increase the company’s operating margin from 0.75% to 1.25% by the end of fiscal year 2022. Harley Davison’s bikes are considered a symbol of luxury and launch of new motorcycles would be a good initiative in improving eth company’s profitability and competitive position in the market.
SWOT Analysis
Strengths
- Harley Davidson enjoys a high brand reputation in the market.
- It has a diverse product range, which aims at offering the unique product offerings to the customers.
- The company has created a niche market for its cruiser bikes.
- The company has created customer loyalty and has expanded its operations globally.
Weaknesses
- The company’s growth has become limited, even sale showed a negative growth in the year 2017, as result of government intervention and poor economic conditions.
- The other general motorcycle producers have a choice in production but Harley Davidson faces a strong competition due to lack of choice in motorcycle production.
Opportunities
- Harley Davison has the opportunity to grow itself in the Asian markets and other developing countries, as luxurious bikes have become a trend in today’s world.
- The company has an opportunity to launch its new products in either the existing market or the new market, thereby improving the company’s profitability and competitiveness in the market.
Threats
- The threat of losing profitability is rising because of the high competition and downward economic conditions.
Credit crisis and tariffs imposed by the government tend to threaten the company’s’ profitability.....................
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